A Delhi based dollar importer in paper industry having exposure of 100cr. The promoters were Not hedging their exposure and makes payment on spot. Management tracks the forex market movements and local equities. The company usually does a buyer’s credit of 180 days.
They wanted to lay more emphasis on the currency risk management process & to keep a track of all the transactions & exposures.
Myforexeye Value Addition
Considering the business of the company and the ongoing practices they are following for the forex exposure management, gave an idea how to maintain a forex risk management system. We made them aware about benchmarking of their forex exposure and to form risk management system for buyers credit. The bank used to charge a margin of 22 paisa per USD – we suggested that such margins are very high considering their annual forex business. Recommended to negotiate with their bank and reduce the margin to 8-10 paisa per USD.
The client was keeping the exposure open, not following a process to monitor and record their exposure. We advised them to follow a risk management process and maintain a record of their buyer’s credit/import exposure in an organised manner. Advised them to keep a target of 5%-5.5% for all in funding cost including hedging cost. Target hedge cost to be around 2-2.5% (from draw down rate), we will achieve the same by keeping a strict watch on their exposure. The target hedge cost can be improved depending on the market levels, all efforts are focused to minimise the hedge cost and take a well planned call.
Recommended the client that our existing service namely Forex Portfolio Management in which we keep a track of client exposure, advise them on costing part and benchmarking of the exposure. We provide client with various hedging strategies and to choose the best as per the current market scenario. The client subscribes to our services and shares their exposure on a regular basis with us. Periodical review meetings are done every 3/6 month as pre decided at the time of contract.